French bonuses: What good is it to be right if you are all alone? Nicolas Sarkozy wants France to lead the world by example in restricting bankers’ bonuses. As usual, the French president is deploying populist histrionics in his latest campaign to “moralise capitalism”. But he’s basically right on substance. He has forced French banks to agree to a code of conduct, threatening to pull French government business if they don’t respect it. But Sarko’s is a losing battle unless he convinces his G20 partners to follow suit.
The new code is in line with the general principles already agreed at the G20 meeting last April. The French bank will spread bonuses payments over three years, with part paid out in shares. There will be a clawback clause, if the business that originally generated the bonuses turns sour. Furthermore, they banks promise more transparency on how much is paid in bonuses and how it is calculated. Sarkozy has also appointed a pay czar to monitor top earners.
Like many voters and some politicians, Sarko is appalled by what he calls “the return of bad habits” in the banking establishment. He wants to put an end to the era of risks for all and profits for a few, which ended up with taxpayers footing the bill for bankers’ excesses.
But there are two risks to Sarko’s strong stand on bonuses. The first is that it opens up a Pandora’s box of hypocrisies, where banks and their lawyers will rush to find ways to go around the new rules, with the aim of retaining top talent.
The second is that other countries – primarily the US and UK – remain cool to the French approach. Actual implementation of the G20 agreement has been slow, and most governments are refraining from legislating on bonuses.
Ironically, Sarkozy is trying the regulation-in-one-country route at a time when he also says he wants to boost Paris as a financial centre. At some point he may sadly come to realise he can’t do both.